KNOT Offshore Partners LP(KNOP) - 2022 Q3 - Earnings Call Transcript

Financial Data and Key Metrics Changes - The company announced a cash distribution of $0.52 for the quarter, marking the 29th consecutive distribution at this level and the 38th consecutive distribution since the partnership was first listed [4] - The distribution coverage ratio slightly increased to 0.6 for Q3 2022, although the board emphasizes a longer-term view rather than focusing solely on this figure [10] - Cash and cash equivalents at the end of the quarter stood at $49.6 million, with $644 million of contracted forward revenue, up from $594 million at the end of June 2022 [8][10] Business Line Data and Key Metrics Changes - The fleet expanded to 18 vessels following the acquisition of the Synnøve Knutsen on July 1, 2022, contributing to increased forward revenue and charter coverage [4] - All five scheduled drydockings for 2022 have been completed, with future drydocks planned for 2023 [14] - Operating expenses increased due to higher bunker fuel costs and elevated crew-related costs, which may become the new normal [9] Market Data and Key Metrics Changes - The company noted good levels of activity in Brazil, while the North Sea market remains a concern, expected to take several quarters to rebalance [8] - The conventional tanker market has seen substantial increases in spot rates, although securing these high rates remains challenging [8] - The total order book for shuttle tankers is muted, with only six likely to deliver before the end of 2025, which may tighten the midterm charter market [13] Company Strategy and Development Direction - The company is focusing on maintaining high utilization statistics and safe operations while exploring opportunities in both the conventional and offshore loading markets [14] - There is a strategic emphasis on long-term growth in offshore oil production, particularly in Brazil, supported by committed FPSO orders [14] - The company is actively working to secure new charters at favorable rates to improve the coverage ratio and overall financial health [18] Management's Comments on Operating Environment and Future Outlook - Management expressed concerns about the North Sea's recovery speed and its impact on cash flows, indicating that if new contracts are not secured soon, the board may need to reconsider the distribution strategy [14] - The outlook for the mid to long term remains positive due to anticipated expansions in offshore oil production, particularly in Brazil [14] - Management acknowledged the challenges posed by rising interest rates and the need for careful financial management [9][10] Other Important Information - The company has $74.6 million in available liquidity, which is crucial for navigating short-term challenges [8] - The partnership's operations are not exposed to short-term fluctuations in oil prices, which provides some stability [13] Q&A Session Summary Question: How is the company balancing its coverage ratio given current challenges? - Management stated that the board is considering all factors and is working hard to improve the coverage ratio through new charters at good rates [18] Question: What are the options in the North Sea market? - Management indicated that while there is overcapacity, there are still opportunities for business, and they are actively engaging with customers [19] Question: What is the impact of lower charter rates on revenue? - Management refrained from providing specific figures but emphasized that having charters in place is better than having no income [29] Question: Will the company consider share repurchases? - Management noted that while share repurchases have not been ruled out, the current focus is on securing charters and maintaining cash reserves [34][35] Question: Concerns about dropdowns and financial management? - Management reassured that dropdowns will only be considered if they make sense financially and contribute positively to the partnership [46]